Question

A monopolist produces 14,000 units of output and charges $14 per unit. Its marginal revenue is $8, its marginal cost is $7 and rising, its average total cost is $10, and its average variable cost is $9. The monopolist should

Answer 1

The firm should increase its output.

• The gain maximizing output measure for such a firm is determined by equalizing the total marginal revenue (MR) with total marginal cost (MC).
• It is the profit-maximizing condition employed to establish equilibrium level of output for a completely competitive business. The market's demand for output rises as the price declines.
• In the given situation since there is difference in MR and MC, thus firm should Increase output, which will result in a higher positive economic benefit for the business.